All posts by Ryan

Many people rely on banks to tell them whether or not they deserve a loan to buy anything from a house to a TV. What people don’t realize is that credit scores are designed to tell banks how much money they can make off of someone.

From a bank’s perspective, credit scores tell the following.

Someone with a high credit score is a good guarantee of consistent profits

A medium score is potential for high profits through fees but with some risk

A low credit score is too risky to consider

We need a system for us to know when to get a loan or when to sign up for that credit card. A true Personal Credit Score will tell us (and not the banks) when a credit decision is best for us. I have started a score sheet below to help everyone out. Let me know if you think this works for you or if something is missing.

Rules of Credit

My Personal Credit Score tool is based on some well known rules of money.

Managing money takes time and time is our most limited currency (not money or gold)

If you are having trouble convincing yourself or someone else that your next big purchase is really worth it, here’s a strategy to add to your arsenal – depreciation.

Sticker prices aren’t the only costs we need to consider when making a purchase. Depreciation rates (not just business lingo anymore) can make the most expensive purchases look cheap and should be a driving force in your next big buy. It doesn’t matter if you’re buying a car or DVD, understanding depreciation can save you money while getting more.

When Depreciation Works for You

Depreciation is the opposite of appreciation. An appreciating asset can be hard to find, but is when the value of what you own increases over time. Houses before the housing bubble burst appreciated every year and made the only real cost the interest you paid and the opportunities you gave up. Depreciation is never an investment, but does decrease the real cost of an item from what you see on your receipt.

Fast Depreciation – Lots of new items like cars and top of the line electronics often lose half their value in the first year or two you own them. If you try to resell a new car or TV a couple of years down the road for half the original cost then you effectively paid the other half for your two years of use.

Slow Depreciation – Used items have already seen their fast depreciation days pass by and start to depreciate more slowly. A few years with a used item may only see a 10% drop in value meaning if you resell it then you pay only 10% of the sticker price for a few years of use.

It’s Cheaper Than You Think

If an item that you are looking to buy first seems expensive (or not), consider how it depreciates. Don’t worry, it’s not as complicated as it sounds. Here are some examples.

Cars – We all hear that cars lose thousands of dollars when you drive them off the lot. The Motley Fool suggests that new cars lose 20% or more of their value the first year followed by 15% in year 2, 13% in year 3, and 12% in year 4. Since a newer car depreciates faster than a used car, you will end up paying more per year to drive a new car than a used car of the same price. More importantly, if your loan only pays down principal slower than the car depreciates then you won’t be able to sell your car for enough money to cover the loan. Avoid this by putting down at least 30-50% of the car value as a down payment.

iPhone – Although you may be a cheapskate, don’t think that holding off on an iPhone upgrade is a good deal. Most iPhones sell for $200 upfront plus a service plan. Since the service plan is used to subsidize the phone, its value is much more than $200 and after two years of depreciation the iPhone is still worth around $200 (just check out eBay for the two year old iPhone 3G). What this means for you is that if you don’t upgrade, you are subsidizing a phone for no reason. Instead, you should sell the old one and upgrade to a better phone for “free”.

TiVo – Most people complain that buying a TiVo is too expensive especially when you consider the monthly fees just to get access to the TV guide. Worse yet, a lifetime TiVo plan costs $400. Of course, that’s unless you consider depreciation. Some quick research on eBay reveals that while the box may depreciate as fast as any other electronic, the lifetime service depreciates slowly. Even after three years of owning a TiVo, the lifetime service may only depreciate by $100 making the monthly cost a more realistic $3/month (and much cheaper than cable). Take it a step further by buying a used TiVo with lifetime service and when considering the resell value, the service is practically free.

Books & DVDs – With sites like Half.com, eBay, and Amazon, it is very easy for anyone to sell their old books and movies. Better yet, if you don’t want to wait for all the DVDs on that boxed set television series to come in on Netflix, consider buying the whole thing on Half.com. After a few days of non-stop 24 or Lost, you can sell them back for approximately the same price you bought them minus some fees. This slow depreciation makes watching the used DVDs almost free.

Considering how your next purchase may depreciate can dramatically change how you perceive its value. Taking advantage of the ease of reselling online through eBay, Amazon, or Craigslist makes reselling your used purchases more practical than ever.

The Power of Giving

I have long been an advocate of giving away money and recommend it before any other financial decision including saving for retirement and establishing emergency funds. Similar to spending money, giving supports those around us and is an investment in our community when done wisely. Even for yourself, giving is beneficial as it allows you to prioritize more important things in life ahead of money by making you realize money is just an optional tool that we can use towards our goals. If you really think about it, money has no direct value to you unless you are out of wood to burn and need paper to start a fire.

Joining the Giving Pledge

I remember as a kid wondering why it was so hard for rich people to give money away. When I had $10 in a shoebox, I didn’t mind giving $1 away to help others so why couldn’t someone with $10 billion give a way $1 billion. As I grew older and my wealth increased from $10 to $100 to $1000s, I began to realize how a modest percentage like 10% became hard to give away. As the numbers get bigger, it’s hard for you to stomach the idea of giving that much away. This is what makes Buffett’s ambition to get the wealthiest people in the world to give away at least 50% of their wealth so amazing.

Lately, Warren Buffett’s example and hard work has paid off (literally) as forty of the richest people in the world have joined his pledge. The Giving Pledge list includes well known names like Ted Turner, George Lucas, and T. Boone Pickens among lesser known billionaires like Alfred E. Mann. On NPR this week, Mann acknowledged that giving his money away is better than leaving it to his family since an inheritance often ruins people. He also said that he hopes to give it all away before he dies so that he can see the benefit of his donation.

What’s Your Pledge

As more and more of the world’s wealthiest commit to giving away their wealth, I’m curious how much of the rest of us will follow suit. It’s easy to say that these rich people still have plenty to live off of and that’s true, but at the same time, they may be the people most attached to their money. If everybody who wasn’t a billionaire even pledged to give away 10% of their income, that would have a much greater impact on our world community.

So what do you think? Do the non-billionaires have the ability to join the Giving Pledge or are we too attached ourselves. Let me know your goals on giving and how it impacts your life in the comments below or on Facebook.

A reader asked recently, “What is national debt? It seems both complex and simple. How will it affect the future?”

Indeed, the US national debt is a complicated issue and this is evident in how the nations top economists continue to debate the significance of our debt and its impact on the nation. As the US national debt continues to swell, many people are seeking to understand the issue better. Here are some basic principles and strategies that should set your foundation for understanding the subject.

Types of US Debt

Public debt can be viewed as the actual amount of money the US owes through loans to individuals, groups, and governments.

This is what the government pays interest on right now.

The second type is “gross debt.”

Gross debt includes future obligations like Social Security.

Although future obligations may be covered by future taxes, current tax rates will not bring in enough revenue to cover them.

Today’s public and gross debt levels relative to the size of the US economy (GDP) are higher than they have been since WWII. This has happened since the Iraq invasion around 2003 and can be largely attributed to the post 9/11 economy and recent “Great Recession.” Entitlement spending (Social Security, Welfare, Medicare) has also had a significant impact on the rising gross debt as population growth has slowed and the ratio of people on entitlement programs to those paying for it has increased.

How the US Debt Will Impact Us

As obligations increase, the US government must continue to raise interest rates so that investors are willing to loan the US money. Alternatively, taxes must increase across the board. Either scenario can be harmful to the economy and thus limiting job opportunities and people’s ability to spend effectively. This creates a few potential problems.

As the US government increases interest rates to raise more money, investors may move money out of corporations leading to more government power and inflation.

As interest obligations to debt holders increase, taxes are no longer used to improve the country but instead go to other nations.

If a decrease in infrastructure programs happens before a decrease in entitlement spending then taxes become less and less an investment in economic growth and more of a temporary solution to support those in need.

American companies are considered more risky as the US debt increases causing prices to rise which creates inflation.

What You Can Do

As time passes, the US will either have to cut programs or increase taxes to pay for the problems. Simply increasing debt is not exclusive of these options since it will increase interest payments which decreases the amount of money going to programs. Even if the government never goes bankrupt, its power on the international scale will diminish slowly over time making living in the US less of an advantage. Here are some strategies you can consider to be prepared.

Be thankful that you live in a great economy that provides you with many more advantages than other places. How many people honestly are completely independent from everything else? Even if our country one day fails us, we’ve been very blessed until now. You have to appreciate the benefits along with the losses.

It’s always funny to watch people get jumpy over a fifty-cent coupon on their next pizza purchase and then not worry about the fact that their largest expenses (taxes and healthcare) may change by thousands of dollars one year to the next.

People definitely delight in the occasional saving. It’s a personal “win” and makes you feel like you beat the system. However, if your goal is to use your money a little more effectively, it’s worth knowing the impact of political changes so that you can react (and vote) accordingly.

What Are the Bush Tax Cuts

For starters, the tax cuts passed in the early 2000s had a few significant impacts. Based on 2010 brackets here are the noteworthy numbers versus pre-Bush tax levels.

You will save 5% on the first $8375 you make (~$419)

Plus 3% on income over $34,000 (another $480 for someone making $50K)

Plus $500 per kid (raised child credit from $500 to $1000)

Plus 5% on stock gains and 25% on dividends

Remember that your taxable income is far less than your salary. Just for breathing, the government exempts $3,650 (personal exemption), and because the government knows your a generous giver they assume you have at least $5,700 in deductions (granted if you have more you can deduct that too). So to be taxed as a $50K earner you would really need to make at least $59,350.

What You Can Do

Nothing. It’s politics. Or stop having kids just to get the child credit (I’ve heard they cost more than $1,000 per year to raise anyway).

No, actually there are some worthwhile moves. First and foremost, be knowledgeable. If the tax cuts don’t get extended, you (the average American) will likely bring home $400-800 less in income next year. For those of you who simply spend the amount of money in your bank account each month, you will be fine but you will end up buying less and continuing your saving achievements of zero. If you have a budget on the other hand, you may need to make some minor tweaks, but you should be ok.

Second, read the news. The Democrats basically control the situation right now in D.C. They want to raise taxes but don’t want to mess with people making under $200K. If that’s you, then you’ll likely see no changes in taxes (healthcare is another issue). If you make more than $200K then be afraid, kinda afraid. Your taxes will likely increase by a few thousand dollars and your inability to lavishly spend, donate, or save like you used to may hurt the economy, but that’s up for debate.

Sigh of Relief

So it looks like the pending doom of slightly higher taxes won’t hit/hurt most of us, yet. Larger concerns for your immediate finances are healthcare changes, but I’ll save that discussion for next week. Do be aware that the national debt is swelling quickly and the long term impact is unknown. Even if taxes don’t go up this year, they will go up eventually.

Generous Information Sources

The Free Money Finance blog recently posted a user’s question on financial Advice for a College Freshman? While there may be endless tips on the subject, here are four key areas I recommend focusing on. I know a lot of my readers are out of college, so feel free to add to it in the comments below and I’ll pass them on.

Find a Co-op Job or Internship

Check with your school’s career development or career services office and see what type of help they provide for obtaining a internship or co-op job. These types of jobs provide two great things. First, they will provide money towards your college living expenses and savings. Second, and more importantly, jobs provide work experience that will teach you valuable professional skills and set you apart as a job candidate when you graduate. Even if the job adds a semester or two to your college life, you are simply extending a great time to develop friends and future connections and better preparing yourself for the future.

Build a Fund to Pay Off the Loan

Assuming you are able to get some type of job, start working on a savings account to pay off that loan. I recommend an online bank like ING Direct or Ally that offers a decent interest rate and easy access to your account. Set monthly goals based on your income and save before you spend. Most college loans start charging interest after you graduate so no need to make payments until then, but if you have built up a savings account during college you will have some momentum into paying that loan off afterwards. Remember, loans are a constant distraction to developing one’s positive financial future and paying off the loan as soon as possible will help you focus on more important financial questions later in life.

Get Involved

Outside of just accumulating cash to be well prepared for the future, you should invest in yourself and skills as well. Your ability to succeed often corresponds to the amount of experience you have and the connections you have. The best way to gain experience working as a team and driving initiatives is by getting involved in clubs in college. Most colleges have a great variety of clubs to participate in so look for something you enjoy and practice being a leader and making things happen.

Work Hard

Every thing you want to accomplish in life will require some bit of effort. A great work ethic is what drives you through those hard times when you start to forget why you are doing something. College offers a great time to develop that work ethic whether it’s in class, in a club, or on the job. Don’t be afraid to fail and practice developing the endurance that will pay off later in life.

Lots of Last Minute Deals on Bing

The cashback program typically offers 2-25% cash back on purchases, and some retailers are ramping up the offers to entice last minute Bing cashback shoppers. To try it out, just search for the next purchase you’re planning to make on Bing. Also, don’t worry how small or large your cashback amount is as Microsoft has said it will remove its current constraint of at least $5 in savings before sending you the money. Here are a few great deals this week.

Where To Go Now For Good Deals

Once Bing cashback is gone the big question is where to go instead for savings. Thankfully there are a number of similar sites out there that are similar. Although, an actual cashback rewards style program will be hard to find, the deal sites below offer great discussions of the latest deals retailers are offering. To test a site out just click a link below and search for the product you want to buy. I tried searching for Macbook Pros on Slickdeals.net and was able to find a local retailer offering $200 off the going price everywhere else.

I loved playing Sim City growing up. The game allows anyone to build the coolest city in the world. Hate traffic? No problem, build extra highways instantly. Love sports? Perfect, a new stadium on every block. In Sim City, you make the rules and in the end your creation happens plus you get rich! Although it’s just a simulation game, Sim City is a great tutorial on how you can succeed at any endeavor; it just speeds things up a bit. If you reflect back on what helps people dominate at Sim City – small steps, delegation, and strong standards – you know what it takes to be extremely successful.

One Step At a Time

In Sim City you don’t create a massive metropolis just by wanting it; you take time to build on small successes. It’s easy to imagine your ideal city, but odds are it never turns out exactly like you originally thought. Your ability to react to unexpected problems and the needs of your people determines your true success. Then as you gain more money and power you can start driving closer to your goals, but remember each small win is what brings you to success.

Have a plan but don’t over do the details.

Focus on solving the current problems and reacting well to unexpected situations.

Continuously check if your steps are moving you in the right direction.

Delegate Often

Timothy Ferriss is the current king on life delegation with his book The 4-Hour Workweek. He outsources nearly every step in his life that he believes is not his to worry about it. Similarly when you’re building your dream city you set the layout and provide infrastructure and let your Sims figure out the rest. They decide how the buildings look, what industries to create, and how they live. You do what only you can do and the Sims do the rest. All your endeavors should be viewed this way. There’s plenty of people out there who can help, and the more you can pass on, the more you can focus on what you are truly best at.

Outsource work when you can be doing something more important.

Take time to train others so that you have more time to do what only you can do.

Delegation helps others who need work and frees you up to do better work.

Strong Standards

A strong city builds itself but relies on the infrastructure created by the leader. In the city this may be appropriate taxes, proper zoning, and efficient means of transportation. When you delegate out work you are allowing others to succeed and help you succeed, but this will only move in the direction you want it to if you have strong standards for others to build upon. This may be the most intangible factor to your success, but also the most critical. Consider your goals, your standards of success, and your ethics and then decide how to communicate them to the people supporting you.

What are your goals, standards, and ethics?

How do you plan to use them to influence others?

Success is easier than most people imagine. By focusing on the next step instead of getting lost in huge plans, by passing off all the work that you are not meant to do, and by developing an infrastructure for others to follow you, you can achieve your dreams. Take some time to figure out what this means for you and start achieving one step at a time.

What’s a goal that you realized was easier than first thought? Got any games that help put things in perspective? Let others know in the comments.

Ever since the inception of Napster over ten years ago, online and free music has been the pursuit of people everywhere. The rise and fall of various music-sharing sites and complicated legal battles has made the process of gaining unbridled access to all your heart’s content of music a difficult undertaking. Thankfully, the music industry is slowly warming up to free online music discovery, and below are great places to start when you want to hear your favorite song for free legally.

Free Music Online

There are a number of great sites for hearing free music online, but most limit your access to songs you own or offer random playlists of songs you may like. One site that rises above the rest in its ability to provide all the music you want is Grooveshark. The ad supported Grooveshark website offers full access to any song you can think of along with the ability to set up a playlist, skip ahead in songs, and listen to radio stations featuring music you like. Although you are not able to download music directly to your computer, you should find Grooveshark as a great way to access the music you want for free.

Free Music Discovery

Another type of useful online service is music discovery. Pandora is the most well know music discovery website and offers music lovers of all types the ability to create a custom radio station. To start, you just need to submit a song you like and Pandora plays similar music. Thumbs-up and thumbs-down buttons then allow you to identify to the service what you really enjoy and the service can then better target new music for you to hear.

Mobile Access to Music

While free online music is slowly becoming a reality, the ability to access that music on the go has been significantly limited. Music discovery services are available though and come as apps on popular phones like the iPhone, Blackberry, and Android phones. Similar to Pandora, a service called Slacker offers a list of popular music styles to choose from in a radio format. If you are really desperate for an unlimited catalog on your phone then check out Rhapsody. While the service will set you back $10/month, you will be able to hear any song you want, whenever you want, and wherever you want.

Go to www.fancast.com/mydvr and follow the links to activate your myDVR service. You’ll be taken through a few pages to sign in and check availability in your area. Finally, you’ll choose to activate your DVR which may take up to 24 hours.

Using myDVR Online from Comcast

Using the myDVR Manager online is very simple and easy to use, and Comcast will enjoy getting more visitors on their fancast site. On the site you’ll find a TV guide similar to what you see on your TV. You can look up shows by channel and time plus filter by popular groups like Movies, Sports, and HD. Once you find a show you want to record, select it and then click “Record Episode” or “Record Series”. Next you will find an interface similar to that on your DVR box where options on how often to record and what to keep are available. The myDVR Manager button (below) is always available and lets you manage the priority of shows and see what upcoming recordings you have.

Mobile Access to myDVR

Best of all, the Comcast myDVR service is available via the Comcast Mobile app on the iPhone and iPad. The app has a guide similar to the one online where you select the shows you want to record and then “Schedule a Recording”. The mobile services are essential to making this service great and have been executed well. I can’t believe I’m thanking Comcast for something, but this is a service I plan to use. What about you? Let other readers know in the comments below.